2010 (4) TMI 980 - HC - VAT and Sales Tax

Levy trade tax on the sale of the said packing material i.e. poly pouches charges as capsuling charges by issuing reassessment notices Held that - In the present case the charge of packing material separately by the assessee is the admitted fact-situation. Along with the short written note supplied by the petitioner s counsel a copy of the petitioner s licence in form CL1 has been enclosed. Para 8 thereof casts obligation on the contractor to supply sprit in pilfer proof bottles of standard size. It is not in dispute that under the U.P. Excise Rules the petitioner has charged the cost of poly pouches from the customers. On the facts of the present case thus there are two contracts (1) with regard to the sale of liquor and the another (2) with regard to the sale of poly pouches for which the petitioner has charged separately. In view of the above discussion we are not impressed by the argument of the learned senior counsel for the petitioner that in view of section 3AB there is no liability of the petitioner to pay trade tax on the sale of poly pouches the packing material which has been charged separately by the petitioner from the purchasers. W.P. dismissed.

Issues Involved:
1. Taxability of packing material (poly pouches) used for country liquor under the U.P. Trade Tax Act.
2. Applicability of Section 3AB of the U.P. Trade Tax Act.
3. Interpretation of the term "together with" in the context of Section 3AB.
4. Validity of reassessment notices issued under Section 21(2) of the U.P. Trade Tax Act.

Detailed Analysis:

1. Taxability of Packing Material (Poly Pouches):
The petitioner, a unit of Co-operative Sugar Factory Federation, Lucknow, is involved in the manufacture and sale of country liquor, which is exempt from trade tax under the U.P. Trade Tax Act. However, the petitioner separately charged for the packing material (poly pouches) used for packaging the liquor, termed as "capsuling charges" in the account books. The Department issued reassessment notices to tax these poly pouches, arguing that the petitioner realized the price of the packing material separately from the purchasers, making it liable to trade tax under Section 3AB of the Act.

2. Applicability of Section 3AB of the U.P. Trade Tax Act:
Section 3AB states that the sale or purchase of packing material will:
(a) be liable to tax at the rate applicable to the goods sold together with such packing material, or
(b) not be liable to any tax if the sale or purchase of such goods is exempt from tax.
The petitioner argued that since the country liquor is exempt from tax and the packing material was sold together with the liquor, the poly pouches should also be exempt from trade tax. However, the Department contended that since the price of the poly pouches was charged separately, it constituted a separate sale, making it taxable.

3. Interpretation of the Term "Together With":
The court examined the meaning of "together with" and concluded that it implies a union or combination with the main product. The petitioner cited the Supreme Court's decision in Premier Breweries v. State of Kerala, which held that when goods are sold in containers, the containers should be taxed at the same rate as the goods, even if charged separately. However, the court noted that Section 3AB of the U.P. Trade Tax Act is more akin to Section 6C of the Andhra Pradesh General Sales Tax Act, which considers the sale of packing material as separate if charged separately.

4. Validity of Reassessment Notices:
The court held that the reassessment notices issued under Section 21(2) of the U.P. Trade Tax Act were valid. The petitioner was found to have two separate contracts: one for the sale of country liquor and another for the sale of poly pouches. Since the petitioner charged separately for the poly pouches, it was liable to pay trade tax on the packing material. The court dismissed the writ petition, upholding the Department's stance that the petitioner should participate in the reassessment proceedings and raise any objections before the concerned authority.

Conclusion:
The court concluded that the petitioner is liable to pay trade tax on the poly pouches used for packaging country liquor, as the price for the packing material was charged separately from the liquor. The reassessment notices issued by the Department were deemed valid, and the writ petition was dismissed.

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